Which statement best describes gross profit?

• A. The total revenue earned from sales
• B. The total assets of a business
• C. The difference between net income and expenses
• D. The difference between sales revenue and the cost of goods sold

Answer: (D)

Gross profit shows how much a company earns from selling goods after covering the direct costs of those goods. It is calculated by subtracting the cost of goods sold from sales revenue. This focuses on the gap between what was earned in sales and what it cost to produce or acquire the goods sold. It’s not about total assets, nor about net income after all expenses, and it doesn’t consider revenue minus only some expenses. That’s why the statement describing the difference between sales revenue and the cost of goods sold is the best description of gross profit.